Overview of Singapore's Captive Insurance Market 

   The Singapore government began positioning the country as a domicile for captive insurers in the 1980s, as part of its strategic plan to develop Singapore into a regional financial and insurance centre. The first captive insurer in Singapore was established in 1983. Since 1989 the number of Singapore captives has nearly doubled; in 2016 in particular, the growth rate of captives reached 10%. To date, 69 captives have been registered with the Monetary Authority of Singapore, comprising 67 non-life captives, 1 life captive and 1 composite captive. Only one captive was established by a Singapore business; the rest were established in Singapore by foreign businesses.

    1990s, Singapore leveraged its advantages, such as low operating costs, prudent and balanced regulation, among others, to successfully attract Australian and Japanese companies to establish captive insurers locally. However, changes in tax rules gradually eroded Singapore's advantages as a captive domicile; in particular, the Japanese government required Japanese offshore companies paying less than 25% tax in their domicile to be taxed in Japan. In 2002 Singapore's tax rate was reduced to 18%, and Japanese captives registered in Singapore relocated, causing the number of captives in Singapore to fall sharply in 2004. Owing to Australia's new solvency requirements in 2004, the number of Australian captives established in Singapore rebounded somewhat.

    Singapore's captive insurance market has grown rapidly. In 2001 total captive premiums reached S$2.4 billion, accounting for 13% of the country's total premium income. From 2012 to 2016 Singapore captives wrote average annual premiums of S$1.112 billion, of which an average of 54.3% was retained by the captives and the remainder was used to pay reinsurance premiums ceded.

    As China vigorously advances the building of the "21st Century Maritime Silk Road", Singapore, as a hub of the Maritime Silk Road, has become an important overseas foothold for Chinese insurance. Singapore has a relatively well-developed captive insurance service system, offering comprehensive captive services including professional captive management, captive audit and captive insurer credit ratings. 

    By the end of 2018 there were 72 captives in Singapore, of which 70 were property insurance captives, 1 was a life insurance captive and 1 was a composite captive. Only one captive was established by a Singapore business; the rest were established in Singapore by foreign businesses.

   To promote Singapore's development into a regional financial and insurance centre, the Singapore government has adopted a series of preferential policies and incentives for the establishment of captive insurers. First, low registered capital and licence fees. The minimum registered capital for establishing a captive insurer is S$400,000, a very low threshold compared with the minimum registered capital requirement of S$25 million for establishing general insurance, life insurance and reinsurance companies. Second, lenient entry conditions. For general insurance, life insurance and reinsurance companies, MAS conducts rigorous review from a number of aspects in accordance with international standards, whereas for captives MAS only requires applicants to submit materials such as a future business plan and projected income and expenditure, and approval may be granted after a general review. Third, preferential tax treatment. Captives pay income tax of only 10% on offshore insurance business and 24.5% on onshore insurance business. General insurance, life insurance and reinsurance companies must pay income tax at 24.5% on both onshore and offshore insurance business. This is also the main reason why there are many foreign-owned captives in Singapore. MAS also applies solvency supervision to captives and will move towards a risk-based supervisory approach. Supervision of their specific business conduct is relatively lenient, but the law expressly prohibits captives from doing business with direct insurers; captives must reinsure with reinsurers in a timely manner in accordance with their own risk profile.

  Insurance regulation in Singapore is the responsibility of the Insurance Department under the Monetary Authority of Singapore (MAS). Since Singapore's accession to the World Trade Organization in 1997, and in order to meet the requirements of liberalising its insurance market, the Insurance Department has set a regulatory objective of fostering a sound, competitive and continuously improving insurance market. Its main elements are: first, implementing prudential and effective regulatory statutes and policies to promote the sound and safe operation of insurance institutions and protect the lawful rights and interests of policyholders; second, creating a sound legal and tax foundation and business environment conducive to the sustainable development of the insurance industry; third, encouraging the insurance industry to raise its operational standards and strengthening the internal governance of insurance companies; and fourth, building a people-oriented, cohesive insurance regulatory system that gives full play to the potential of its staff. In particular, over the past two years MAS has adopted many new measures to improve and strengthen insurance supervision.

  Singapore began applying a solvency-based approach to supervision in the early 1980s. With respect to the supervisory approach, in order to meet the needs of market development, new supervisory methods and instruments such as risk-based capital (Risk-Based Capital, RBC) were studied and formulated, progressively achieving a shift from solvency margin supervision (Solvency Margin) to a risk-based approach (Risk-Based Approach, RBA).

   Under the overall RBA approach, different identification and assessment methods are applied to the two major categories of risk faced by insurance institutions, namely financial risk and non-financial risk. The three financial risks - assets, liabilities, and whether the two are matched - are identified and measured using the RBC method; non-financial risks such as operations, management and conduct of business are addressed through on-site and off-site examinations. The RBC method is the core of the RBA approach, that is, the three financial risks of each insurance institution are measured by category and risk-based capital adequacy ratio requirements are proposed for each company in a targeted manner. Based on the results of the above risk identification and measurement, an early-warning system is established for each company together with separate supervisory opinions. The early-warning system classifies risk by severity into five categories: normal, early warning, concern, danger and failure.

  In terms of its regulatory system, Singapore, guided by the 17 Insurance Core Principles of the International Association of Insurance Supervisors (IAIS), has continuously improved its regulatory standards covering the insurance regulatory architecture, objectives and goals, market entry of insurance institutions, corporate governance structures and internal control systems, asset-liability management and capital adequacy requirements of insurance institutions, conduct of business in the insurance market, statutory financial statements and on-site inspections, progressively aligning itself with prevailing international insurance supervisory standards and general trends.

  From 2000, the Singapore government decided to open up its insurance market and to adjust its insurance regulatory system accordingly. The government also undertook major reform of the regulatory regime for insurance intermediaries: first, it comprehensively reviewed the legal regime governing insurance intermediaries, amended the Insurance Act and enacted the Financial Advisers Act to replace the previous laws and regulations on insurance intermediaries; second, it reformed the regulatory regime for agents, especially life insurance agents, combining deregulation with prudential supervision.

  Early in 2002 the Insurance Act was amended to add provisions on general insurance brokers, reinsurance brokers and all intermediaries, bringing general insurance brokers and all intermediaries within the scope of the Insurance Act. The Financial Advisers Act brought life insurance brokers within its regulatory scope.

  For a long time agents have been the main distribution channel for Singapore insurance products, especially life insurance; in 2001 business sold through agents accounted for more than 80% of total premium income. In recent years MAS has carried out a series of reforms to the agency management regime. First, it standardised the organisational structure of agency organisations. Before 1996 insurance companies could establish multiple agency organisations; some had as many as five levels of internal management with a wide span of control, and some had more than a thousand staff. This led to weak management of agents, uneven quality of agents, irregular market conduct and numerous complaints. MAS began to regulate the insurance agency market in 1996 and, through the issuance of Regulation No. 306, focused on streamlining and standardising the agency organisation system. After several years of regulation, the size of agency organisations was effectively controlled, companies' management of agents was markedly strengthened and the quality of agents generally improved. Second, it tightened the professional standards for agents. While standardising the organisational structure of agency organisations, MAS set out clear requirements for agents, agency supervisors and agency managers in terms of age, educational qualifications, qualification examinations, professional training and professional ethics. Third, it reformed the agency commission system. Before 1996 insurance companies paid agents high commissions, with some companies' rates exceeding 200% of first-year premiums and reaching 300%; agent attrition was high, professional quality and service standards were low, and some even used improper means to mislead customers. Through Regulation No. 306, MAS reformed the standards for payment of agent commissions.

  The Singapore insurance industry has established a relatively sound system of industry associations by category of institution, with separate associations for general insurance, life insurance, reinsurance and insurance brokers. Under the guidance and impetus of MAS, each association has various specialist committees that bring together experts from within the industry to study and resolve major issues of self-regulation and development. In recent years the associations have done a great deal of work, mainly in unifying management and operational standards, promoting industry development and technological progress, regulating market conduct and improving the industry's image.

  To promote Singapore's development into a regional financial and insurance centre, the Singapore government has adopted a series of preferential policies and incentives for the establishment of captive insurers. First, low registered capital and licence fees. The minimum registered capital for establishing a captive insurer is S$400,000, a very low threshold compared with the minimum registered capital requirement of S$25 million for establishing general insurance, life insurance and reinsurance companies. Second, lenient entry conditions. For general insurance, life insurance and reinsurance companies, MAS conducts rigorous review from a number of aspects in accordance with international standards, whereas for captives MAS only requires applicants to submit materials such as a future business plan and projected income and expenditure, and approval may be granted after a general review. Third, preferential tax treatment. Captives pay income tax of only 10% on offshore insurance business and 24.5% on onshore insurance business. General insurance, life insurance and reinsurance companies must pay income tax at 24.5% on both onshore and offshore insurance business. This is also the main reason why there are many foreign-owned captives in Singapore. MAS also applies solvency supervision to captives and will move towards a risk-based supervisory approach. Supervision of their specific business conduct is relatively lenient, but the law expressly prohibits captives from doing business with direct insurers; captives must reinsure with reinsurers in a timely manner in accordance with their own risk profile.

  The operating data of Singapore's captive insurance industry in recent years are as follows: